The DAF will manage the donor's non-returnable contribution and direct contributions to the causes the donor chooses. This approach provides a degree of confidentiality, because the fund will not identify the donor to the charity that receives the contribution, shielding the donor from unwanted solicitations or publicity. Donations are tax-deductible the year they are made, even if the funds are disbursed over time.
"Donor-advised funds established through reputable companies like Fidelity and Schwab perform due diligence on the charities their funds can gift to," says Grant A. Webster, a certified financial planner at AKT Wealth Advisors AP in San Diego. "By using a donor-advised fund, all of your detailed records are kept, making it much easier come tax season. Often, the minimum contribution is as low as $5,000, he says.
Those tax benefits vary. Deductions can be large for people in high tax brackets, or nonexistent for those who don't itemize on their returns. Giving $1,000 to a qualified charity might save you $250 if you are in the 25 percent federal income tax bracket, but just $150 in the 15 percent bracket. Some states allow charitable deductions; others don't.
Seeking a tax refund is not necessarily selfish; it can allow you to give more. If you feel you can afford $1,000, for instance, you could give $1,333, because you'd get a $333 tax deduction, assuming a 25 percent tax rate.
This story has been updated to reflect that churches and religious organizations receive 32 percent of contributions, more than double the second-largest category — education (15 percent) — and the third, human services (12 percent).
— By Jeff Brown, special to CNBC.com
This story is part of NBCU's Season of Kindness. Follow the series on Facebook, Twitter and Instagram. #ShareKindness